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US chemical output to drop this year

Novel coronavirus shutdown is choking demand for chemicals as well as investment, key trade group says

by Melody M. Bomgardner
April 21, 2020 | A version of this story appeared in Volume 98, Issue 16

This photo shows N95 masks on a production line at a Honeywell site in Rhode Island.
Credit: Honeywell
In response to the novel coronavirus, Honeywell started producing N95 masks at a manufacturing site in Smithfield, Rhode Island. Increased production of protective equipment has driven up demand for some chemicals.

The US economy, now under a wide-ranging shutdown due to the novel coronavirus, is likely to shrink 4% this year. And US chemical manufacturing will decline by a similar amount, according to a forecast from the American Chemistry Council, the industry’s main trade group. In response, the ACC says, chemical firms will cut jobs and hold off on business investment.

2 possible futures

The coronavirus’s impact on US chemical production this year depends on length of shutdowns

December 2019 outlook
0.4% growth

Baseline 2020 forecast
3.3% decline

Pessimistic 2020 forecast
6.5% decline

The ACC estimates that US chemical output will fall by around 3.3% in 2020 if shutdowns are lifted before the end of June, but output could drop by 6.5% if shutdowns last through the fourth quarter. The figures do not include pharmaceuticals. In December, the association had projected output to rise slightly this year.

The decline is due to not only public health-motivated shutdowns in the US, but also to unprecedented moves by other governments to restrict the activities of business and consumers.

“The resulting sudden and severe collapse in economic activity has brought the global economy into the steepest recession since the 1930s,” Kevin Swift, the ACC’s chief economist, wrote in an update to the group’s economic outlook report.

ACC is projecting world trade will plummet 10.5% this year due to impacts from the coronavirus. The year kicked off with muted trade activity as the Trump administration pressured partners like China for concessions and new agreements. Now, as oil prices plummet—recently reaching negative territory for some crude futures—the shale-gas price advantage that was powering US chemical exports has evaporated.

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Global industrial manufacturing will fall by nearly 4% this year, signaling weak demand for chemicals. In the US, the manufacturing let-up will be more than twice as steep, falling 8.4%, ACC anticipates.

The first major industry to halt production was auto manufacturing. ACC expects US vehicle sales this year to fall to 13.1 million from 16.9 million in 2019. In an April 20 update, DuPont told investors that it has idled production at several sites that serve automotive and related industrial markets.

A thin silver lining for companies is that efforts to combat the virus are stimulating demand for chemicals and materials used in personal protective equipment (PPE), medical equipment, test kits, and disinfectants.

Specialty chemical maker Stepan reports a jump in demand for surfactants, used in cleaning and disinfection products. Similarly, DuPont says the need for PPE will buoy first-quarter earnings. The firm is also reporting strong sales of water-filtration materials, food and beverage ingredients, probiotics, and materials used in electronics.

In addition, US sales of flexible packaging, driven by higher purchasing of packaged foods, are expected to jump by 10% this year, according to the consulting firm Wood Mackenzie.

While employment in the chemical industry will not suffer to the same degree as in retail, restaurant, and other service industries, ACC expects chemical job losses could total 28,000, or 5.1% of the workforce, in 2020. The cuts would reverse the industry’s 3-year run of job expansion.

And while it is not yet clear how the job cuts would be distributed among production, R&D, managerial, and administrative roles, overall business investment is expected to decline this year, the group says.


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